{"id":55115,"date":"2024-04-16T00:21:53","date_gmt":"2024-04-16T00:21:53","guid":{"rendered":"https:\/\/exam.pscnotes.com\/mcq\/?p=55115"},"modified":"2024-04-16T00:21:53","modified_gmt":"2024-04-16T00:21:53","slug":"profitability-index-when-applied-to-divisible-projects-impliedly-assumes-that","status":"publish","type":"post","link":"https:\/\/exam.pscnotes.com\/mcq\/profitability-index-when-applied-to-divisible-projects-impliedly-assumes-that\/","title":{"rendered":"Profitability Index, when applied to Divisible Projects, impliedly assumes that:"},"content":{"rendered":"<p>\r\n    <!-- Check if it's an AMP page -->\r\n            <!-- Non-AMP version -->\r\n        <div class=\"mcq-container\" data-quiz-id=\"quizState_6a9755df92f12\">\r\n                                            <div class=\"option\" data-option-key=\"option1\" data-is-correct=\"false\">\r\n                    Project cannot be taken in parts                <\/div>\r\n                                            <div class=\"option\" data-option-key=\"option2\" data-is-correct=\"false\">\r\n                    NPV is linearly proportionate to part of the project taken up                <\/div>\r\n                                            <div class=\"option\" data-option-key=\"option3\" data-is-correct=\"false\">\r\n                    NPV is additive in nature                <\/div>\r\n                                            <div class=\"option\" data-option-key=\"option4\" data-is-correct=\"true\">\r\n                    Both B and C                <\/div>\r\n                            \r\n            <!-- Feedback messages for non-AMP -->\r\n            <div class=\"feedback\" data-feedback=\"wrong\">Answer is Right!<\/div>\r\n            <div class=\"feedback\" data-feedback=\"right\">Answer is Wrong!<\/div>\r\n        <\/div>\r\n\r\n        <script>\r\n        document.addEventListener('DOMContentLoaded', function () {\r\n            var containers = document.querySelectorAll('.mcq-container');\r\n\r\n            containers.forEach(function(container) {\r\n                var options = container.querySelectorAll('.option');\r\n                var feedbackSelect = container.querySelector('[data-feedback=\"select\"]');\r\n                var feedbackWrong = container.querySelector('[data-feedback=\"wrong\"]');\r\n                var feedbackRight = container.querySelector('[data-feedback=\"right\"]');\r\n\r\n                options.forEach(function(option) {\r\n                    option.addEventListener('click', function() {\r\n                        var selectedOption = option.getAttribute('data-option-key');\r\n                        var isCorrect = option.getAttribute('data-is-correct') === 'true';\r\n\r\n                        \/\/ Remove previous selections\r\n                        options.forEach(function(opt) {\r\n                            opt.classList.remove('correct', 'incorrect');\r\n                        });\r\n\r\n                        \/\/ Add the correct\/incorrect class\r\n                        if (isCorrect) {\r\n                            option.classList.add('correct');\r\n                            feedbackRight.hidden = false;\r\n                            feedbackWrong.hidden = true;\r\n                        } else {\r\n                            option.classList.add('incorrect');\r\n                            feedbackRight.hidden = true;\r\n                            feedbackWrong.hidden = false;\r\n                        }\r\n\r\n                        \/\/ Hide select feedback\r\n                        feedbackSelect.hidden = true;\r\n                    });\r\n                });\r\n            });\r\n        });\r\n        <\/script>\r\n    \r\n    <!--more--><\/p>\n<p>The correct answer is: <strong>D. Both B and C<\/strong><\/p>\n<p>Profitability Index (PI) is a project selection method that compares the present value of the project&#8217;s cash inflows to the initial investment. It is calculated by dividing the project&#8217;s NPV by its initial investment.<\/p>\n<p>A divisible project is a project that can be taken in parts. For example, a construction project can be divided into different phases, each of which can be completed independently.<\/p>\n<p>When PI is applied to divisible projects, it implicitly assumes that:<\/p>\n<ul>\n<li>The NPV of the project is linearly proportionate to the part of the project taken up. This means that if we take up half of the project, the NPV will be half of the NPV of the entire project.<\/li>\n<li>The NPV of the project is additive in nature. This means that if we take up two projects, the NPV of the two projects will be the sum of the NPVs of the individual projects.<\/li>\n<\/ul>\n<p>These assumptions are not always realistic. For example, the NPV of a project may not be linearly proportionate to the part of the project taken up. This is because some projects may have economies of scale, <div class=\"telegram-channel-container\">\r\n        <a href=\"https:\/\/t.me\/pscnotes2025\" target=\"_blank\" class=\"telegram-channel-button\">\r\n            <span class=\"telegram-icon\">\r\n                <svg xmlns=\"http:\/\/www.w3.org\/2000\/svg\" viewBox=\"0 0 496 512\">\r\n                    <path fill=\"white\" d=\"M248,8C111,8,0,119,0,256s111,248,248,248s248-111,248-248S385,8,248,8z M362,177L320,367c-3,14-10,18-20,14l-56-41l-27,26 c-3,3-5,5-10,5l4-63L323,196c5-5-1-7-8-3l-98,62l-42-13c-9-3-10-9,2-14l162-63C351,160,365,164,362,177z\"\/>\r\n                <\/svg>\r\n            <\/span>\r\n            Join Our Telegram Channel\r\n        <\/a>\r\n    <\/div> which means that the NPV per unit of output decreases as the scale of the project increases.<\/p>\n<p>Similarly, the NPV of a project <div class=\"youtube-subscribe-container\">\r\n        <a href=\"https:\/\/www.youtube.com\/channel\/UCNHT8lW-JmLC68rjBfZhdkg?sub_confirmation=1\" target=\"_blank\" class=\"youtube-subscribe-button\">\r\n            <span class=\"youtube-icon\">\r\n                <svg xmlns=\"http:\/\/www.w3.org\/2000\/svg\" viewBox=\"0 0 576 512\">\r\n                    <path d=\"M549.7 124.1c-6.3-23.7-24.8-42.3-48.3-48.6C458.8 64 288 64 288 64S117.2 64 74.6 75.5c-23.5 6.3-42 24.9-48.3 48.6-11.4 42.9-11.4 132.3-11.4 132.3s0 89.4 11.4 132.3c6.3 23.7 24.8 41.5 48.3 47.8C117.2 448 288 448 288 448s170.8 0 213.4-11.5c23.5-6.3 42-24.2 48.3-47.8 11.4-42.9 11.4-132.3 11.4-132.3s0-89.4-11.4-132.3zm-317.5 213.5V175.2l142.7 81.2-142.7 81.2z\"\/>\r\n                <\/svg>\r\n            <\/span>\r\n            Subscribe on YouTube\r\n        <\/a>\r\n    <\/div> may not be additive in nature. This is because some projects may have interdependencies, which means that the NPV of one project may be affected by the decision to take up another project.<\/p>\n<p>Despite these limitations, PI is a useful project selection method for divisible projects. It is simple to calculate and easy to understand. It also takes into account the time value of money.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Join Our Telegram Channel Subscribe on YouTube<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[945],"tags":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v22.2 (Yoast SEO v23.3) - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Profitability Index, when applied to Divisible Projects, impliedly assumes that:<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/exam.pscnotes.com\/mcq\/profitability-index-when-applied-to-divisible-projects-impliedly-assumes-that\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta 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